26/07/2024
Written by: Ian Morley
Summary:
The US dollar ended slightly weaker yesterday amid discussions of potential currency intervention regarding the Chinese yuan (CNY) and Japanese yen (JPY) earlier in the day. The British pound (GBP) also saw a marginal increase. Federal Reserve official Bostic reiterated his expectation for rate cuts this year, while Fed’s Cook warned against delaying rate cuts, suggesting it could harm the economy.
Speeches:
Market Insight:
Another subdued day is anticipated, with end-of-quarter flows expected to influence the FX market. GBP showed some improvement yesterday after a broad sell-off last week. It remains to be seen whether GBP sellers perceive this uptick as an opportunity to sell the currency at a better level or if they await further appreciation. With speculation mounting that the Bank of England (BoE) could be the second European central bank to cut rates, there is a growing sentiment for continued GBP selling.
Analysis:
Although a rate cut by the BoE in May seems improbable due to persistent inflation in the UK, money markets currently assign a higher probability of a BoE cut (23%) in May compared to the Federal Reserve (12.6%) and European Central Bank (5.9%). However, there has been a notable shift in expectations this month, with the UK initially being the least likely to cut rates in May but now being perceived as more likely. This reversal in rate cut expectations has significantly contributed to the recent negative sentiment surrounding GBP.